Courtesy: Oddity
Oddity Tech, the beauty and wellness company that uses AI to develop cosmetics and has former Israeli defense officials on staff, debuted on the public markets with a 35% pop Wednesday as the IPO market heats up.
The direct-to-consumer platform behind the Il Makiage and Spoiled Child brands saw its stock close at $47.53 per share after pricing its IPO at $35 per share Tuesday night. That was above a previously set range of $32 to $34 per share.
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The company sold 12.1 million shares and as of end of trading Wednesday had an approximate market valuation of $2.7 billion.
Oddity and its shareholders, which include private equity powerhouse L Catterton, raised about $424 million in the deal.
The stock trades on the Nasdaq under the ticker symbol “ODD.”
“We are taking the company public because I want to build something huge, otherwise I would sell the company. So this is just another milestone,” co-founder and CEO Oran Holtzman told CNBC. “Meeting so many investors in the past two weeks and … seeing them getting what we do and connecting to our vision after so much hard work, I think that’s what makes me so happy and so grateful.”
Launched in 2018 by Holtzman and his sister Shiran Holtzman-Erel, Oddity aims to disrupt the legacy beauty market and replace the in-store experience by using data and artificial intelligence to develop brands and make tailored product recommendations.
At the heart of Oddity’s business model is its proprietary technology — including tools developed by a former Israeli defense official — and the billions of data points it has collected from its millions of users.
The company stands out compared with other direct-to-consumer retailers that went public in 2021 because it has grown while achieving a profit.
“We are unlocking online for one of the most attractive and lucrative [total addressable markets] on the planet,” said Lindsay Drucker Mann, Oddity’s global CFO and a former Goldman Sachs executive. “We have delivered a playbook that supports a financial profile that has, up to this point, been elusive in direct-to-consumer and certainly elusive in beauty and wellness. It’s only enabled by our unique model, which has technology at the center and is based on data.”
Profits at IPO
Oddity stands out as a rare DTC brand with both impressive growth and profits already on the books. That’s been a key driver of investor interest as the IPO market rebounds from a lull.
When interest rates were at record lows two years ago, companies that could demonstrate hyper growth were able to win over investors even if they weren’t yet profitable. But as the macroeconomic backdrop has worsened, that’s no longer the case, and investors are laser-focused on earnings.
Michael Farello, a managing partner of L Catterton’s growth fund, said Oddity’s ability to achieve growth, scale and profitability is what made the company a unique and attractive investment.
“They still have tremendously high growth so yes, it’s profitable, but they’ve really demonstrated that they can do both, it hasn’t been a trade off of one versus the other,” Farello, whose firm first invested in Oddity in 2017, told CNBC. “They’ve been growing at extraordinary clips and the fastest in the category online. At the same time as that, they’ve been profitable from a very early stage and that message resonated extraordinarily well with investors.”
In the three months ended March 31, the company saw $165.7 million in revenue, up from $90.4 million in the year-ago period. It reported net income of $19.6 million, or 35 cents a share, compared with about $3 million, or 5 cents a share, a year earlier.
In fiscal 2022, Oddity brought in $324.5 million in sales and saw net income of $21.7 million, or 39 cents a share. In the year prior, the retailer saw $222.6 million in revenue and net income of $13.9 million, or 26 cents a share.
In 2020, it saw $110.6 million in sales and net income of $11.7 million, or 22 cents a share.
In the three months that ended March 31, its gross margins were 71%, up 4 percentage points from 67% in the year-ago period.
On average, Oddity’s gross sales have doubled each year since 2018, the company has said.
In a regulatory filing, Holtzman touted the company’s workforce and said 40% of its global head count is comprised of technologists, many of whom were recruited from the Israeli Defense Forces’ best technology units.
In late April, Oddity announced it was investing more than $100 million to acquire biotech startup Revela and open a U.S.-based lab so it could create brand-new molecules, using AI, that it can use in its cosmetics brands and future lines.
Looking ahead, Oddity plans to launch more brands and will use the proceeds from its offering to invest more into its data and technology and create products it says are backed by science.